[Congressional Record Volume 157, Number 167 (Thursday, November 3, 2011)]
[Extensions of Remarks]
[Pages E2000-E2001]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              SMALL COMPANY CAPITAL FORMATION ACT OF 2011

                                 ______
                                 

                               speech of

                        HON. SHEILA JACKSON LEE

                                of texas

                    in the house of representatives

                      Wednesday, November 2, 2011

  Ms. JACKSON LEE of Texas. Mr Speaker, I rise in support of H.R. 1070, 
``Small Company Capital Formation Act of 2011'' which would require the 
Securities and Exchange Commission (SEC) to create a new and larger 
exemption, effectively raising the limit from $5 million to $50 million 
for its Regulation A security offerings and permitting a more stream-
lined approach for smaller issuers. Presently, the limit for Regulation 
A security offerings is $5 million; however, this avenue is rarely 
pursed due to the small size of issuances permitted. The bill would 
permit SEC to impose conditions on issuance under the rule, and would 
require periodic review of the limit.
  Regulation A was enacted during the Great Depression to stimulate the 
economy by improving small businesses' access to equity capital. While 
the initial offering threshold of $100,000 has been increased over the 
years to the current $5 million set by the Commission in 1992, it has 
not been increased to reflect the rising costs associated with bringing

[[Page E2001]]

a small company public over the last two decades.
  In this day and age, a small to medium company simply cannot afford 
to go public at a cost of $5 million. For the last 19 years we have had 
substantially fewer companies that have chosen to go public. The $5 
million threshold has resulted in a chilling effect. In the last year, 
only 3 companies have utilized this process. Going public allows a 
growing company to have access to capital, equity, and additional 
financial resources. They need to raise capital in order to grow their 
business. Currently, there are 5,100 public traded companies. In 1997, 
there were 8,873 publicly traded companies. This legislation is 
intended to reverse a downward trend.
  Due to the low offering threshold, and without a corresponding state 
``Blue Sky'' exemption for Regulation A offerings, Regulation A has not 
provided a viable capital-raising vehicle for smaller companies in 
recent years. Amplified by increased difficulties for smaller companies 
resulting from the recent financial crisis, these shortcomings of 
Regulation A have invited renewed focus on this regulation.
  The legislation before us today is designed to encourage small 
companies to attract additional capital which will allow them to invest 
and hire additional employees. As part of a broader effort to tie the 
financial regulatory environment to U.S. job creation and economic 
competitiveness.
  Small and medium companies would be able to offer securities up to 
$50 million publicly without the full cost of a registered offering, 
potentially expanding their access to capital beyond the private 
offerings many now use. Additional protections for investors were added 
to this bill. Companies utilizing Regulation D are required to provide 
investors with audited financial statements annually.
  We must implement policies that achieve the right balance between the 
competing objectives of promoting valid investment business 
opportunities and protecting citizens from inappropriate risk and 
fraudulent schemes. This bill allows States to retain their ability to 
review these generally high risk offers as a means for protecting 
investors. Additional protections include giving investors legal 
recourse for misstatements made by companies in the prospectus 
documents. Regardless of an investors sophistication level, when a 
company is dishonest, the investor must be protected.
  Small businesses need access to loans and other lines of credit in 
order to build their businesses and create jobs. Before us is a measure 
that would allow small businesses to get the support they need. This 
bill will provide small businesses with increased access to capital.
  According to the U.S. Small Business Administration, small businesses 
account for 52 percent of all U.S. workers. They are the life blood of 
our economy. Small businesses in the U.S. produced three-fourths of the 
economy's new jobs between 1990 and 1995, and represent an entry point 
into the economy for new groups. Women, for instance, participate 
heavily in small businesses.
  The number of female-owned businesses climbed by 89 percent, to an 
estimated 8.1 million, between 1987 and 1997, and women-owned sole 
proprietorships were expected to reach 35 percent of all such ventures 
by the year 2000. They were hindered in large part because of lack of 
access to traditional forms of credit. Before us today, is a measure 
that would help businesses grow. Small firms also tend to hire a 
greater number of older workers and people who prefer to work part-
time.
  We must always remember that American small businesses are the heart 
beat of our nation. I believe that small businesses represent more than 
the American dream--they represent the American economy. Small 
businesses account for 95 percent of all employers, create half of our 
gross domestic product, and provide three out of four new jobs in this 
country.
  Although I support the bill before us today, it is important to 
highlight that having an opportunity to invest in small businesses is 
important. However, given the risky nature of such investments, these 
opportunities should be made available to investors who understand the 
risk and have the financial wherewithal to handle any losses that may 
come as a result of the investment. Small business needs access to 
capital in order to grow and flourish. Individuals who invest in these 
companies and startup should understand the unique risk associated with 
such investments.
  The success of small business is America's success. This success can 
be achieved by encouraging small business growth and entrepreneurship. 
Especially, as our nation is facing a prolonged period of high 
unemployment and slow economic growth. Many of us have seen businesses 
disappear since the financial crisis. These businesses did not fail 
because of their inability to compete, or due to shortcomings in their 
business plan or because of the goods and services they produced. They 
failed because they could not get loans from banks.
  Without access to capital, Houston native Michael Dell would not have 
been able to start one of the most successful computer retail 
businesses in the world. His $1,000 dollar initial investment in the 
198os allowed Dell Computers to become a household name. Without this 
capital, America would not have had one of its premier innovators.
  The economic impact of this legislation is encouraging because 
businesses require capital in order to expand and flourish. When 
businesses are presented with this opportunity, jobs are created that 
in turn, will stimulate economic growth. Dell's headquarters alone 
employs roughly 16,000 people.
  I urge my colleagues to join me in supporting H.R. 1965, ``To amend 
the securities laws to establish certain thresholds for shareholder 
registration, and for other purposes.''

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